On January 18th, 2022, Microsoft Corp. announced that it will be buying the popular game studio Activision Blizzard for $68.7 billion. Some of the franchises in the Activision roster include Call of Duty, Diablo, Candy Crush, and Overwatch. Apart from these marquee properties, Activision Blizzard has a whole host of game studio subsidiaries with additional intellectual property. Importantly, this acquisition will make Microsoft the third largest gaming company in the world after Tencent and Sony. When Microsoft CEO Satya Nadella was asked about a potential regulatory block of the deal on antitrust grounds, he brushed aside any such concerns with the following statement:
“At the end of the day, all the analysis here has to be done through a lens of what’s the category we’re talking about, and what about the market structure? Eve3n post-this acquisition, we will be number three with sort of low teens [market] share, where even the highest player is also [in the] teens [for market] share. It shows how fragmented content creation platforms are. And so, that’s the fundamental category. Yes, we will be a big player in what is a highly fragmented place.”
Nevertheless, the Federal Trade Commission will complete an antitrust review of the deal to ensure that it does not hinder competition within the industry. Microsoft as a company is also not new to antitrust issues, remembering their antitrust lawsuit in 2001.
Now, while there is speculation that Microsoft's acquisition of Activision Blizzard is expected to move forward without issue, this is not the only major game developer Microsoft has acquired. Just last year in 2021 they bought Zenimax Media, the parent company of Bethesda Softworks, developer of the popular Fallout franchise. Importantly, these major acquisitions also involve the subsidiaries of these parent companies which also include extremely popular and valuable intellectual property like Doom, Wolfenstein, etc. So, these are not single studio buys but rather the acquisition of behemoths in the gaming space. In total, with the latest Activision deal Microsoft's number of game developers will go up to 32. Meanwhile, close rival Sony has 17 such developers in total.
So, what does this all mean from an antitrust standpoint? While Microsoft will now be the third-largest gaming company by revenue, still behind Sony, they have been acquiring the biggest game developers, have more developers than Sony, and through these deals are acquiring universally popular titles like the Call of Duty franchise. Speculation right now states that the FTC investigation into the deal will look at competitor access to these big game titles, with the combination of Activision's gaming roster with Microsoft's consoles being both a horizontal and vertical market integration. Important to note is that both Microsoft and Sony have been focusing on developing and promoting exclusive titles to make their consoles more enticing. In the past Sony’s PlayStation exclusive titles have made them dominant in this regard, with console unit sales much greater than those of Microsoft. However, with the acquisition of so many huge franchises it will be interesting to see what Microsoft does and does not make exclusive going forward, and how this will impact the market landscape. Already The Elder Scrolls VI, which will be the latest release in the Elder Scrolls franchise developed by Bethesda, will be Xbox exclusive.
The big question becomes what happens with extremely popular Activision titles like Call of Duty, Microsoft has stated that they will honour any current multiplatform agreements, but no one knows what will happen with future titles. This is part of the speculation around the FTC investigation of this acquisition, as Microsoft buys up more and more of the major game developers and game titles, what will happen to competition should they choose to make these titles Microsoft exclusive. This is all without considering Xbox game pass. Microsoft's subscription-based gaming service. The situation becomes even more complex if Microsoft decides to make these popular gaming titles game pass exclusive. Specifically, it raises the question of whether Sony would be forced to offer game pass on PlayStation to appease customers, and how regulatory bodies would view this from an antitrust standpoint.
When looking at these regulatory bodies, the FTC chair Lina Khan is a strong critic of big tech, under Khan the FTC has already blocked the acquisition of ARM by Nvidia and is trying to win a case which would make Meta sell off WhatsApp and Instagram. They have also filed a lawsuit to prevent Lockheed Martin's deal with Aerojet Rocketdyne Holdings from going through. While this does not mean that Microsoft's acquisition of Activision will be blocked, it does signal that the FTC under Khan will implement a more rigorous regulatory process. In fact, on the same day that Microsoft announced its acquisition of Activision, the FTC along with the United States Department of Justice announced that they would work to “modernize federal merger guidelines to better detect and prevent illegal, anti-competitive deals.”, stating that “many industries across the economy are becoming more concentrated and less competitive”.
What this all boils down to is that while Microsoft may appear to be confident regarding the regulatory approval of this acquisition (with a $3 billion breakup fee clause if it does not go through), there is still uncertainty as to what this FTC headed by Lina Khan will do, what Microsoft's next moves will mean for antitrust in the gaming industry, and what the gaming industry will even look like in the future if such massive acquisitions continue.
Cited Sources:
Microsoft acquired Activision Blizzard to bring the joy and community of gaming to everyone, across every device. (2022, January 18). Stories. https://news.microsoft.com/2022/01/18/microsoft-to-acquire-activision-blizzard-to-bring-the-joy-and-community-of-gaming-to-everyone-across-every-device/
Welsh, O. (2022, February 4). Microsoft CEO argues that buying Activision Blizzard will help him build the metaverse. Polygon. https://www.polygon.com/22917625/ microsoft-activision-blizzard-metaverse-satya-nadella
Parrish, A. (2022, January 19). A guide to Microsoft’s Xbox game studios empire. The Verge. https://www.theverge.com/2022/1/19/22890225/ microsoft-xbox-activision-blizzard -aqcuisition-game-studios
Microsoft Deal for Activision to Be Reviewed by FTC in U.S. (2022, February 1). Bloomberg.Com. https://www.bloomberg.com/news/articles/2022-02-01/microsoft-deal-for-activision- to-be-reviewed-by-ftc-in-u-s
Will Activision Blizzard games be Xbox exclusive? Look at history. (2022, January 18). Digital Trends. https://www.digitaltrends.com/gaming/call-of- duty-xbox-exclusive/
Why the FTC’s antitrust investigation could spell trouble for Microsoft’s Activision Blizzard acquisition. (n.d.). Fortune. Retrieved February 5, 2022, from https://fortune .com/2022/02/01/ftc-antitrust-investigation-microsoft-activision-blizzard- acquisition/
Looking Ahead to Tougher Merger Guidelines and Enforcement. (n.d.). The National Law Review. Retrieved February 5, 2022, from https://www. natlawreview.com/article/looking-ahead-to-tougher-merger-guidelines-and-enforcement
By: Rvaha Afaan
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